Mortgages.

Lending Limits Depend On Mortgage Type

Q-We are baffled on how much we can borrow with the different types of lending programs.

A-Consumers have basically two types of lending categories to consider-conventional or government loans.

In conventional loans, the lending limits are set by Fannie Mae or Freddie Mac, two quasi-governmental bodies that oversee the secondary market and set the standards for selling mortgage loans.

This year, Fannie Mae's guidelines on single-family first mortgages were increased to $203,150. The limit for second mortgages is $101,575. For two units the amount is $259,850, three units $314,100 and four units $390,400.

The mortgage industry considers loans over these conventional standard amounts as jumbo loans. Note that these amounts refer to the mortgage or loan and not the overall cost of the home.

In addition, these limits apply only to the continental U.S. For Alaska and Hawaii, the maximum original loan amounts are 50 percent higher in each category.

It is a common misconception that interest rates should be lower for jumbos because of the larger loan amounts. In fact, the reverse is true because jumbo mortgages are in essence "non-standard loans," which have less of a market among investors.

The difference in interest rate will be approximately 0.5 percent higher for jumbo loans in comparison to conventional loans.

Then there are the government-backed loans from the Federal Housing Administration and Department of Veterans Affairs.

Although geared to first-time home buyers and low- to moderate-income families, FHA sponsored lending programs are not restricted to any income group and underwriting is more liberal than conventional programs.

There are advantages to the consumer for FHA-insured loans, including lower down payment amounts and a higher allowable debt-to-income ratio.

In March of this year, the Federal Housing Administration sharply increased the lending limits for the Chicago metro area.

Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will Counties are now at the highest limit of $151,725 for FHA-insured single-family mortgages. Lending limits for two, three and four units are $194,100, $234,600 and $291,600, respectively.

For eligible veterans (active duty of 181 days and not dishonorably discharged) along with Reservists and National Guard members who served in the Persian Gulf War (active duty 90 days), another government-backed lending option is the VA.

The VA will guarantee up to $36,000 or one-fourth of a $144,000 home. In certain cases, for housing above $144,000, as much as $46,000 may be available, allowing a veteran to buy a $184,000 home without a down payment.